The Eurozone debt crisis has ended although nations may struggle to close economic and financial regulatory issues for years.
The surprising statement comes from investment expert Rupert Watson of wealth management firm Skandia.
Watson argues that financial problems will rumble on for nations like Spain, Portugal and Greece for many years – and that the difference between the Eurozone crisis and national economic problems really do not matter much to the unemployed in these countries.
However, investors, he explains, take a different view because the debt crisis has the potential to undermine economic growth and financial markets worldwide, while austerity policies and unemployment are largely national issues that do not spill over to other continents.
The key action bringing the Eurozone debt crisis to a conclusion was European Central Bank president Mario Draghi indicating the ECB would take any action necessary to protect the integrity of the single currency.
“This enhanced role, which includes buying an unlimited number of short-dated bonds issued by countries formally requesting support and agreeing a fiscal reform. This backstop is formidable and should ensure countries have few problems funding themselves,” said Watson.
The firm also feels a major sea change has taken place within the Eurozone –
- The political climate in Berlin has softened on compromising with other nations to maintain the Eurozone intact
- Nations with economic problems, like Spain and Greece, have agreed austerity terms to ease the crisis
Coupled with the ECB backstop promise, these moves have switched the Eurozone for global centre stage to managers of local economic problems.
“Many of the Eurozone problems have been more about governance, unemployment or economic growth rather than debt,” said Watson. “The deficit in the Eurozone is lower than that in the US and has pitched in lower than that in the States for some time.
“Somewhat remarkably, the deficit as a percentage of GDP in the US has been higher than the GDP-weighted deficit in the problem economies of Greece, Ireland, Italy, Portugal and Spain every year for the last 10 years.”
The main difference, according to Skandia, is US stands behind all the debt, while Eurozone nations have failed to send such clear signals about the stance over borrowings.
“Poor government in some nations and a lack of effective governance across the region has resulted in weak growth and high unemployment. Resolving these two problems will take some time,” said Watson.